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OFI AM is celebrating its 50th anniversary at a crucial time. Anchored from the outset in the values of the social economy and mutuality, Ofivalmo - renamed OFI AM in 2006 - has never ceased to work for responsible finance. It was a visionary choice and one born from conviction, supported by Gérard Bourret who led the Group for nearly 30 years and whom I had the honor to succeed. Awareness of the need for a collective, global response to the climate emergency has since become widespread.
To achieve carbon neutrality by 2050 and respect the commitments made in the 2015 Paris Agreement, we must collectively implement the energy transition without forgetting the crucial importance of fostering the emergence of a more balanced society, enabling all to meet their needs in a world of limited resources. And it is the challenge of responsible finance to direct investors’ savings towards the companies most committed to a responsible approach, those that respect ESG (Environmental, Social and Governance) issues and that provide concrete solutions to meet these challenges. As a management company, we have an important role to play in supporting, through our investments, the financing of companies that are committed to transforming their business model or proposing solutions to build a responsible and sustainable economy and create long-term value. Our role also consists of encouraging companies to do everything possible to adopt good practices, through dialogue and the exercise of our voting rights as a committed shareholder.
This is how OFI has developed and enriched its offer of solutions on the main asset classes, listed and unlisted. Today, our offer meets the best standards of regulatory requirements such as SFDR and labels to propose strategies that allow institutional and individual investors to invest in a useful and virtuous way, with the aim of creating value and performance for their investments.
Knowing how to think outside the box
As the global economy gradually emerges from a pandemic, markets must evolve in a new, uncertain, more inflationary environment, but one that will offer opportunities to investors willing to think outside the box to position themselves in the players that are preparing the economy of tomorrow. At OFI AM, we believe that the energy transition will transform our traditional dependence on fossil fuels into a dependence on metals, which are necessary for the rise of renewable energies. The transition will reshuffle the balance and we need to understand the changes that will take place to prepare for a new model on a global scale. These upheavals will be a source of tremendous investment opportunities which, in addition to the interest in building a better world, will be a source of performance for our clients.
With its strong roots and values, OFI enters a new era with determination and confidence. With the creation of our subsidiary Syncicap AM in Hong Kong, we are also proud to have a new management company in Asia, which will be our center of expertise in SRI strategies for emerging equities and bonds.
Since its creation in 1971 by GEMA mutuals, OFI has grown and established itself over time as a leading player in SRI asset management. Today, the Group is positioned in all asset classes to invest and finance the economy in a responsible manner.
Turning 50 is quite a milestone! A symbolic one that allows us to measure how far we have come. At the beginning of the 1970s, when France was accelerating its industrial development, visionary personalities from the world of mutual insurance and the social economy - Gilbert Magal of GMF, Paul Bennetot of Matmut, Yves Thiré of Maaf and Jacques Vandier of Macif - created, with the support of the Fraternelle Automobile, Société Générale and Paribas, a simple financial structure to serve mutual insurance companies called “Ofivalmo” (Omnium FInancier de VALeurs MObilières). This mutualized management tool was registered in July 1971 by the Conseil National du Drédit. Ofivalmo developed rapidly in the second half of the 1970s, extending its operations from the primary bond market to the secondary market.
The end of the “Trente Glorieuses” (1945-1975), a period of exceptional growth in Western countries after the Second World War, did not hinder Ofivalmo’s development. In the 1980s, the world was changing at full speed and computers appeared in offices. This modernization went hand in hand with the unprecedented development of the financial markets against a background of dematerialization, disintermediation and decompartmentalization. Changes in financial regulations opened up new opportunities for investors and Ofivalmo, which increased its investments and accompanied the success of life insurance with the entry of the newly created Mutavie structure into its capital in 1980. Thanks to the French banking law of 1984, Ofivalmo obtained the authorization to manage on behalf of third parties. In 1985, the adoption of the UCITS directive at the European level also opened the door to a change in status.
IN 2006, OFIVALMO BECOMES OFI AM
During the 1990s, the construction of Europe experienced a sudden acceleration due to the end of the Cold War, which led to the creation of the euro at the end of the decade. Ofivalmo followed along with these changes and continued to grow, in particular by creating a “market department”.
The 2000s brought about the development of partnerships with the United States and emerging markets, which gave the Group a new visibility. In 2006, Ofivalmo turned a page by becoming OFI AM. As a well-established asset manager, OFI AM has weathered the storms of the early 21st century (internet bubble and terrorist attacks in 2000-2002, financial crisis of 2008-2009, Eurozone crisis in 2011-2012, Covid-19 pandemic from 2020) without deviating from its course. Over the years, OFI has expanded its expertise to better enrich its offer and serve its clients: creation of InfraVia Capital Partners (infrastructure) in 2008, Zencap AM (unlisted debt) in 2011, Swen Capital Partners (unlisted multi-management) in 2015 and OFI Pierre (real estate) in 2017, and the opening of international development in 2017. This year, OFI is proud to launch Syncicap AM in Hong Kong, its subsidiary which will be the Group’s new center of expertise in emerging markets.
Today, OFI has €70 billion in assets under management as of the end of December 2021, thanks to the confidence of its clients and the support of two major shareholders - Macif and Matmut - who back its approach as an independent responsible investment management company. It has been a long road over the past half-century to successfully transform a simple financial structure serving mutual insurance companies into a reference leader in responsible finance with a resolutely forward-looking approach.
OFI AM has had a lasting relationship with art for 30 years. Two worlds that seem so far apart and yet... As the artist shapes a work of art, selecting what he needs to give it meaning, we as an investor select companies with a view to giving meaning to the investment, with the responsibility of shaping the world of tomorrow and creating value. We like to encourage and support artists’ audacity and creativity.
OFI’s goal in 1991 with the creation of the “Encounters with Artists” program was to offer often unknown artists - be they painters, photographers or sculptors - a unique space for expression within the company’s premises, and to unite employees around artistic creation.
“This openness to the arts takes place at all levels and, in addition to creating a work environment that is highly appreciated by employees, also enhances creativity, provokes reactions and inspires” commented Isabelle Habasque, Director in charge of CSR. Innovation is at the heart of the asset management business, just as it is at the heart of the process of artistic creation.
The 750 works that make up OFI’s art collection are on display. Moving through the different floors, one corridor sees an elephant’s head in resin followed by an abstract painting, while an electric blue gorilla with an aesthetic straight from video games or a revisited African mask mark out the central staircase, transformed into an art gallery which announces the program: “The OFI Experience”. Some discreet and others giant, the works selected to be displayed among the 350 exhibited are part of an expression of diversity, of a “living together”, of an artistic emulation on the seven floors of the building. This artistic wealth is the result of a policy of voluntary and constant patronage since 1991. New works are added to the collection every year.
A collection constantly enriched with new artists
The goal is to discover and encourage talented new artists who bring an inspiring perspective to the world. Employees can participate in the process of identifying artists and sharing this culture. The works are listed in some ten catalogs with portraits of the artists who express their relationship to art and explain their creative process and sources of inspiration.
Vernissages are regularly organized in the main hall. These exhibitions, which last from 6 to 8 weeks, are an opportunity to invite employees, clients and partners to meet around artistic expression.
It is also a place open to the public, where people can see these works free of charge and discover the artists exhibited. When the offices were closed during the different lockdown periods, there was nevertheless an effort made to preserve the link between the employees of OFI and art. “Every day, I sent a newsletter to all the employees that featured one of the emblematic works of the collection. This break was an opportunity to create a moment of sharing and of escape” explained Nathalie Carral, head of patronage at OFI.
Starting March 23rd, we will exhibit two artists: the painter Aldo Balding and the sculptor Tatiana Potapova, combining delicate and luminous plant paintings with the powerful force of steel sculptures.
Investing in companies that respect Environmental, Social and Governance issues (ESG criteria) allows us to create value over the long term and to finance a more sustainable and responsible economy in the interest of all. This is why, very early on and among the pioneers in this field, OFI developed an SRI offer on both listed and unlisted assets, proposing thematic, “Best-in-Class” and “Impact Investing” strategies, making it possible to invest in a useful and virtuous way while striving for long-term financial performance.
The SRI offer proposed by the OFI Group has continuously been enriched over the last few years, reflecting our historical anchorage in the values of the social and solidarity economy shared with our shareholders, and our deep conviction that we have a responsibility to contribute to responsible finance.
OFI AM, a signatory of the Principles for Responsible Investment (PRI) since 2008, has obtained an “A+” rating for four consecutive years and until the last review in 2020, the highest rating awarded by this organization supported by the United Nations, which underlines the Group’s involvement in this area.
Socially Responsible Investment is progressing in Europe thanks to an unprecedented regulatory effort to develop a continent-wide “taxonomy”. The principle is to direct investments towards activities considered as with a view to achieving the objective of carbon emission neutrality by 2050 as defined in the European Green Pact.
The SFDR (or “Disclosure Regulation”), which went into effect in March 2021, distinguishes between funds offered in three categories: “Article 6” funds, which are classified as “non-ESG”, “Article 8” funds, which incorporate ESG characteristics, and, finally, “Article 9” listed funds, which have the objective of sustainable investment. These funds, which represent the best of responsible finance, have the particularity of focusing on a specific criterion. They are most often “impact” funds, capable of precisely measuring the objective pursued. Today, OFI AM offers 11 “Article 9” funds and 34 “Article 8” funds.
OFI offers different SRI approaches that can be combined: the Best-in-Class approach, which consists of selecting the best-rated companies in each sector of activity on the basis of ESG criteria; the thematic approach, which aims to identify the most active companies based on a sustainable development theme; and the impact investing approach. Under the brand OFI Responsible Solutions (OFI RS), OFI offers a range of SRI strategies covering the main asset classes and geographical areas.
OFI ACT4: A RANGE OF IMPACT INVESTING FUNDS
In addition to integrating ESG best practices in its management, OFI AM also aims to generate a positive, measurable impact on the environment and/or society while targeting financial performance.
The objective is simple: to focus on companies that have a measurable and quantifiable positive impact on sustainable development. As such, impact investing fits perfectly into the definition of funds that can be classified as “Article 9”. OFI AM has developed a range of impact investing funds, called “Act4”. It includes in particular:
THE RISE OF DIVERSIFYING AND RESPONSIBLE MANAGEMENT
OFI AM’s SRI funds offer has been enriched and diversified over the years thanks to the creation of entrepreneurial subsidiaries specialized in non-listed funds, and also through equity investments:
As a player committed to responsible finance, OFI AM offers a number of label-bearing funds that attest to the management company’s good practices in terms of Socially Responsible Investment. Here is a brief reminder of the three reference labels:
24 OFI AM funds have this French state label, created in 2016 by the Ministry of the Economy and Finance. This label combines Socially Responsible Investment and long-term economic performance, by investing in companies in all sectors of activity that participate in the development of responsible and sustainable activities. To be eligible for the SRI label (“ISR” in French), vehicles must take ESG criteria into account and are required to implement extra-financial analysis tools to monitor ESG performance and communicate them regularly to investors.
2 OFI AM funds have this label. Created in 2015, the FNG label is the SRI-quality standard for sustainable investment funds in German-speaking countries. The FNG methodology includes transparency criteria and takes human rights, environmental protection and corruption issues into account.
1 OFI AM fund holds this label created in 2015 under the responsibility of the Ministry of Ecological Transition. The Greenfin label aims to attract savings to finance the ecological and energy transition. This state label dedicated to green finance is issued by independent experts who certify that the funds comply with the specifications set up by the Ministry. For example, activities linked to fossil fuels are excluded from the Greenfin label.
As a responsible investor, OFI AM engages in a dialogue with the companies in which it invests to encourage good ESG practices. This is a crucial issue that requires a perfect knowledge of their businesses and ESG issues.
We have long been convinced that companies that integrate ESG (Environmental, Social and Governance) issues are also those that offer the best prospects and create value over the long term. Our role as a committed investor is therefore to select with the utmost rigor the companies that are best prepared to address the challenges of tomorrow. We must therefore take an objective and independent look at them to encourage them, if necessary, to transform their business model and improve their practices.
Our approach favors continuous dialogue with the management bodies of French and European listed companies during meetings, particularly during General Meetings. This approach, which takes the form of written and oral questions, can also result in the tabling of resolutions at General Meetings. It sometimes leads us to join forces with other investors on issues that have a strong resonance. It is always preferable to work collectively, with other management companies or institutional investors who share our values.
We also participate in working groups within the framework of the PRI (Principles for Responsible Investment) and IIGCC (Institutional Investors Group on Climate Change).
In addition, we are associated with the independent agency Proxinvest, specialized in corporate governance and shareholder engagement, in the framework of our voting policy, taking into account the local specificities of each country in which OFI AM is invested around the world.
EXIT FROM THERMAL COAL AND OIL
This commitment can be translated into various concrete actions. First and foremost, through progressive exclusion policies, notably targeting thermal coal, non-conventional gas and oil producers. OFI AM is clearly committed to excluding thermal coal (coal mining, coal-fired power generation) from its investments by 2030, and to phasing out oil activities with a goal of zero investment in this sector by 2050. However, exclusion is not an objective in itself. At the heart of our approach as an investor is the desire to help targeted issuers to improve their practices in concrete terms. This requires a thorough understanding of the businesses of the selected companies in order to provide them with the most useful support possible and the financial resources necessary for their transformation.
THE ENERGY TRANSITION WILL NOT HAPPEN WITHOUT THE TRANSFORMATION OF THE MAJOR OIL COMPANIES
In this respect, the example of TotalEnergies provides an interesting insight into our shareholder engagement. In 2021, OFI AM, along with other shareholders, rejected Resolution 14, formalizing the climate ambition proposed by the Board of Directors of TotalEnergies. While the oil company is certainly in a better position today to make the transition to a low-carbon energy model, it is imperative that it steps up its efforts and accelerates the implementation of measures allowing a significant reduction in absolute terms in its Scope 3 emissions by 2030. This will not be possible without a clear commitment from the group to reduce its fossil fuel production. But voting against a resolution does not mean voting against a company.
The energy transition will not be effective without the transformation of major oil companies like TotalEnergies. However, this change takes time and cannot be done abruptly, at the risk of dramatically upsetting a balance that will then have to be restored. OFI AM is therefore playing its role as a shareholder, which allows it to dialogue with the company’s management so that it becomes more involved. In fact, it is thanks to this dialogue with all these shareholders that TotalEnergies has already made the effort to reduce its carbon intensity by 15 to 20%. But in the immediate future, “cutting of” oil companies would be a complete mistake if we really want to achieve carbon neutrality by 2050 and limit global warming to 1.5°C.
COMMITMENT TO PROTECTING BIODIVERSITY
Our commitment thus involves supporting large companies in their transformation, but also financing young start-ups, both listed and unlisted, that are inventing the solutions of tomorrow. This is the case of our subsidiary SWEN Capital Partners, dedicated to responsible investment in unlisted assets in Europe, which in September 2021 launched a European impact fund, “Blue Ocean”, dedicated to financing innovative start-ups specializing in the preservation and regeneration of the ocean. With Ifremer as the fund’s scientific partner, SWEN Capital Partners illustrates our Group’s commitment to biodiversity.
“The world leader in inspection, certification and laboratory testing, Bureau Veritas employs 78,000 people in 140 countries. Today, in France, 30% of the organic products on our plates have been inspected by Bureau Veritas teams, who work on farms to ensure that the “organic” specifications are respected. The company has a strong CSR policy with significant integration of ESG criteria. Bureau Veritas also shows a willingness to transform its business model in growth areas, notably thanks to its green line of services and solutions involved in sustainable development (40% of sales in Q1 2021). Bureau Veritas also stands out for its very good human capital management practices”.
“Our interest in Saint-Gobain is based both on its financial performance, which has improved significantly in recent quarters, and on its extra-financial qualities in terms of ESG and climate change (the group’s contribution to the energy transition). We are confident in the stock’s strategy for two reasons: firstly, its commitment to being a responsible player, particularly through its 2050 carbon neutrality target with a 2030 deadline and targets validated by the Science- Based Targets initiative, and secondly, the quality of its products, which contribute to achieving the energy transition. The stock remains cheap compared to the universe of the most emblematic companies in the energy transition. Growth is improving in an environment driven by more dynamic markets and relaunch plans that will support Saint-Gobain’s business worldwide”.
In early 2022, the main economic issues were how long post-pandemic growth would last in a more inflationary environment, and the exit from monetary policies that until then had been ultra-accommodative.
The war in Ukraine has made some profound changes in the economic environment. Uncertainty is the prevailing sentiment in the current framework of the conflict, and visibility is very low for the coming days, given the Russian president’s unpredictability regarding his strategy. The long-term impacts are accordingly very challenging to lay out.
Even so, some potential impacts are emerging:
The unpredictable outcome and repercussions of the conflict in Ukraine is making it hard to formulate any views in the short term, given how challenging it is to gauge how Putin will react and what his endgame is. With this in mind, central banks are likely at first to focus on the risk of a spike in inflation expectations by sticking to their monetary tightening plans, particularly in the US. Thereafter, they will probably ease their policies, particularly in Europe, if some initial signs of slowdown emerge. Inflation therefore looks to be less under control, given that it could spike in the event of a ratcheting up of sanctions on the energy front, with, once again, risks of an economic slowdown. The levels hit by the equity markets in the macroeconomic and microeconomic framework that prevailed prior to the invasion of Ukraine looked attractive, but caution is in order prior to taking back on any exposure. An exit in which none of the parties loses face looks hard to achieve in the short term. Intervention by China, the great silent partner thus far, could shift the balance and redraw the lines, but China is undergoing an economic slowdown that it only just now begun to deal with. Conversely, if the conflict were to fester, that could lead to economic slowdown combined with high inflation, raising fears of a phase of stagflation. In short, central banks will remain under the markets’ microscope.
The investments required to achieve the energy transition are still to come. They will lead to a race for metals to replace our dependence on fossil fuels.
Achieving the energy transition to carbon neutrality by 2050 is an essential challenge to be taken up collectively, but one that will be costly. And we are behind schedule. The decarbonization of our economies requires a change in our production methods, with increased use of nuclear or renewable energy electricity.
“We will have to change scale. The development of renewable energies is already a reality, but the global growth in demand for electricity is such that 50% of it was offset last year by coal. Globally, we are now investing $1.2 trillion a year in the energy sector. This is far too little. To meet the 2015 Paris Agreement target, we would need to spend $4.3 trillion a year, according to estimates by the International Energy Agency (IEA)”, explains Benjamin Louvet, commodities manager at OFI AM.
Investing in renewable energy is an expensive process. It is not the sun or the wind that directly produces electricity but the transformer used in wind turbines or solar panels that uses these energies to produce electricity. These transformers require the use of specific metals. The energy transition will thus change our dependence on fossil fuels into dependence on metals used in the manufacture of these renewable energies.
One observation: the countries that produce metals are not necessarily the same as those that supply the world with hydrocarbons. “Did you know that a country like the Democratic Republic of Congo (DRC) produces and has 65% of the world’s cobalt reserves? Chile, Mexico, Australia and Canada are also major producers of metals, while China accounts for half of the world’s demand, compared to barely 10% twenty years ago. The supply of metals will require us to redefine our strategic partnerships”, warns Benjamin Louvet.
At more than $90 per barrel of Brent, the price of oil has continued to rise, increasing by more than 50% in one year. The end of the crisis has therefore benefited hydrocarbon producers, while demand for black gold has soared. However, supply is finding it increasingly difficult to keep up with the increase in demand, while the oil majors have been experiencing an investment deficit for the past five years. According to the International Energy Agency, the peak of conventional oil production was passed in 2008 but consumers have not reduced their consumption. “The upcoming energy transition period should not only see metal prices rise but also, let’s not forget, fossil fuel prices”, says Benjamin Louvet.
According to IMF (study - October 12, 2021) estimates, the prices of four essential metals such as nickel, lithium, cobalt and copper could quadruple by 2040. As we enter this commodity “super-cycle”, investors need to take this prospect into account. “The battery in an electric car uses lithium, cobalt, nickel and manganese. In addition, an electric car contains four times more copper than a conventional car. Renewable energies also require the use of aluminum, zinc, lead and platinum. And silver is a metal that is widely used in green technologies”, says Benjamin Louvet.
In order to finance this energy transition, governments will also be called upon to contribute (in particular for the financing of the nuclear sector). But the upward movement in interest rates that is underway will make it more expensive to take on debt, while the Central Banks must now fight against the return of inflationary pressures.